During the initial stage of your business, you will concentrate only on revenue. Later this will move to profitability. But once you reach a stage of a steady stream of revenue with profitability you will start slicing and dicing the revenue. This is when you will first concentrate on the share of revenue from repeat business.
New business gives room to your growth acceleration. But repeat business gives the stability to your business.
Take, for example, if your total revenue is 10M and if you have a track record of having 4M as your repeat business from year after year then you should never reduce your yearly target as 6M new businesses. You should again keep 10M as the target for the year from New Business.
This will give a huge growth acceleration and out of my experience, I will say that you should concentrate to have your operational cost within the repeat business revenue and should use the revenue from new business in venturing out new ideas or expansion.
Apart from the revenue part, there are also other important key factors we can get from our repeat business.
Repeat business is the best contributor to design the growth strategy of your company. You can get an in-depth vision on analyzing the data of the repeat business in terms of Technology, Customer Satisfaction, and common need of these customers so that even with a very small tweak you can do magically positive changes to your business.
2. Understanding about the work culture difference
This has proved to be the most important factor in any success or failure of the relationship.
It will take time for the customer to understand your work culture and the same way for you to understand the work culture of the client. I have seen many business relationships fails during the trial project or after the first project itself.
It will take its own sweet time to understand both sides and particularly if it is offshoring then it will take much longer time than near-shoring. Once you both cross this chasm then it will save a lot of time in the execution of the project.
3. Best Practices
Even if you have a defined business practice for your company, because of the repeat customers and businesses it will be easy for you to adopt a different practice with different clients. This is initially not possible for new customers as it may sometimes hurt the relationship itself.
How can you increase your repeat business?
It is not an easy task or a quick task to be accomplished. To understand this you should understand as when you will call your business a successful one or not.
The best answer I can say is the quote of Ilya Lichtenstein “it usually takes at least 5 years to build a company to exit or profitability. They’re built piece by piece, making one user or customer at a time, getting to the next milestone and waiting for the next major opportunity to reveal itself”
What is the right percentage to have repeat customer or revenue?
It is practically true that you have to run a business for 5 years to take a call whether it is a profitable one or not. Until then you have to struggle and put in your best possible efforts to accomplish the task of running it.
There is no exact percentage to be capped for this. But the industry norm is to be between 25-50%.
If we have to take a call at the end of 5 years then you should be getting between 5-10% of your revenue from repeat business or at least at the end of the third year your repeat revenue should be above 25%.
If you are able to cross 50% in the 5th years, then you are very well placed in the market for the next 3 -5 years minimum on profitability. If this task is achieved then your concentration should be focussed on New Business with 30% growth every year.
If the above is reached in a Small and Medium Business in the IT service Industry, then you will be at the employee head count of 150 in the 3-4th year, 250 at the 5-6th year and would have crossed 500 by the end of 7th year.
So concentrate on New Business for the first 2 years then Repeat Business till the 5th year and then onwards your business will accelerate exponentially as you have already started splitting the revenue between new and repeat businesses successfully.